Transportation companies are taking a hard look at their zero tolerance policies now that 28 states have legalized the medical and/or recreational use of marijuana.

Knowing when to discipline an employee and when to stay one’s hand though, is going to be difficult. Traces of the nonactive ingredients of marijuana can remain in a person’s system for days, even months. It will be hard to determine whether an employee was getting high on the job or is simply testing positive after a long weekend.

One thing experts agree on is that the goal of any kind of test should be to determine whether a worker can do their job safely and effectively.

“No matter what type of drug, whether it’s legal or illegal, including prescribed medication, we need to understand how they can impact workers’ ability to perform job functions, especially when operating vehicles or machinery,” said Paul Baute, a vice president within Marsh Risk Consulting’s fleet safety practice in Indianapolis.

“We need to keep safety paramount.”

“The principal question they want to determine is whether the drugs can affect job performance, and particularly whether safety can be affected because an employee is working under the influence.” — Paul Baute, vice president, Marsh Risk Consulting

Commercial drivers are allowed a certain threshold of marijuana in their system by the U.S. Department of Transportation (DOT).

Under DOT requirements, employers will also conduct confirmatory tests with a cutoff of 15 ng/ml. If a worker exceeds the initial cutoff, their case is referred to a substance abuse professional.

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That consultant in turn works with the employee and their doctor to determine whether there is a prescribed or over-the-counter medication that could have been the reason for the positive result.

If the employee still tests below the 50 ng/ml cutoff no matter the drug, then that would mean for work purposes, the substance is not in their system — zero tolerance really means that an employee cannot have an amount above the cutoff, he said.

For workers testing positive, employers could have a zero tolerance policy or they could have a rehabilitation policy, which is allowed by the DOT.

Employers can have separate drug testing policies for non-CDL drivers and operators of machinery, and still another for all other types of employees, such as office workers, Baute said.

“The principal question they want to determine is whether the drugs can affect job performance, and particularly whether safety can be affected because an employee is working under the influence,” he said.

Hair sampling is relatively inexpensive and the results are quick, but it tests for the longest time frame that the drugs could be found in the body, Baute said.

Which Test is the Right One?

The DOT’s primary test is a urine test, but the agency will accept a blood sample if a worker is involved in a collision and is unable to provide a urine sample at the time of the accident.

David Mitchell, director of risk control and safety, Aon Risk Solutions

David Mitchell, director of risk control and safety for Aon Risk Solutions’ transportation and logistics practice in Little Rock, Ark., said the DOT determined that the urine tests would not change because of all of the new state laws legalizing marijuana.

Some fleets use hair testing in addition to urine testing, but the method is at a “tentative stage right now,” as the Motor Carrier Safety Administration has not approved hair testing.

“It’s a very sensitive safety risk management position at this time,” he said.

“Hair testing adds costs and that would be an additional fleet determination if they think it’s worth it for their own company culture.”

Regarding random testing, the federal agency last year reduced the percentage of drivers that are required to have such tests by 50 percent, because the previous years’ positive results “were so low there was no justification in the higher test rate,” Mitchell said.

“Drug use among truck drivers is not high, and drugs are not the cause of many crashes,” he said.

Barry Sample, senior director of science and technology at Quest Diagnostics Employer Solutions in Seneca, S.C., said that there really hasn’t been much, if any, change in drug test cutoffs from the firm’s employer clients operating in the states that now allow for medical and/or recreational use of marijuana.

For those states that have had these laws for a longer time — Colorado and Washington — Quest’s clients have inquired whether they can remove marijuana from the panel or change the cutoff, but to date haven’t changed their policies.

“These inquiries are more from employers that are having difficulty finding qualified employees and they are now making a risk determination,” Sample said.

“Right now, they are not willing to take the risk of changing their drug testing policies because they don’t know the impacts to productivity and safety.”

Still, Quest is continuing to monitor possible changes in ordering patterns by employers.

“I would advise employers to continue to look at their employee base and make risk-based decisions as to what drug testing is important to help ensure that they have a safe as well as a productive workforce,” Sample said.

Mark A.R. Kleiman, professor of public policy at New York University, said that some companies use drug testing to screen employees for other characteristics that might be correlated with drug use, such as whether the person “has a taste for breaking the law.” Some employers just believe that marijuana users “are not good people.”

“But then you have to ask whether it’s an employer’s rule to enforce the law, or moral views, with respect to employees’ private lives,” Kleiman said.

It’s Not Drug Testing; It’s Impairment Testing

Ellen Komp, deputy director, California NORML

Ellen Komp, deputy director of the cannabis advocacy group California NORML in San Francisco, said that urine testing has never been scientifically shown to be safe or effective at improving workplace safety or productivity.

Komp cited a 1985 consensus report of medical expert opinion in the “Journal of the American Medical Association,” concluding that drug tests are an inherently unreliable indicator of drug impairment.

“Workplace drug testing programs are essentially spying on workers outside of the workplace, because they do not necessarily show whether a person is actually impaired if they smoked marijuana days earlier and traces of the drug have remained in the system,” she said.

“Hair sampling in particular can pick up marijuana use months earlier. It’s not a good way to ensure safety in the workplace, but rather a way to discriminate against workers.”

The advocacy group does support impairment testing “as a better way to ensure safety without discriminating against workers,” Komp said.

Bowles-Langley Technology Inc. developed an impairment testing application, and a 2009 study of the application under a grant by the National Institute for Occupational Safety and Health showed that such testing for fatigue and impairment in the workplace is both feasible and practical, said Henry M. Bowles, CEO of the Alameda, Calif. firm.

He also is a board member of Predictive Safety in Centennial, Col., which merged with Bowles-Langley last year and is now “leading the charge” for commercialization, conducting pilot studies with several companies including mining companies in South Africa.

It launched a mobile app, AlertMeter, which measures reaction time, decision-making and pattern recognition. The quick minute-plus test can be taken before or just as a person gets to work, and the results are transmitted to a common database that can be monitored by a safety manager.

Individuals take the test 10 times to establish personal baselines and then are tested against their own baseline. The software adjusts the baseline as people get better and better at taking the tests, but if people score significantly below their baseline both on an initial test and a retest, then their supervisor is alerted.

“Company policy should be in place to help a manager make a decision about what should happen,” Bowles said. “It could be that the individual stayed up with a sick child and maybe just needs to work on a computer instead of a forklift for the day.”

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Bowles stressed that the firm is not trying to “overthrow the chemical drug testing regime” because it is pretty well-embedded in law, particularly for DOT-regulated companies. However, fatigue is not detected “or considered important” in the current system of drug testing.

“We’re seeing that a lot of impairment occurs because of fatigue as well as from the use of drugs, both legal and illegal,” he said.

“More and more companies are telling us, especially with the legalization of marijuana, that impairment testing makes the most sense.” &

Katie Kuehner-Hebert is a freelance writer based in California. She has more
than two decades of journalism experience and expertise in financial writing.
She can be reached at [email protected]

Rates are likely to rise for many lines of insurance in 2019, and management liability is no different. In the year ahead, the management liability market will be “stable, but firming,” said Keith Riccio, Vice President, Management Liability and Specialty, Nationwide.

On average, companies can expect to see 10 to 20 percent increases in D&O pricing at renewal, which Riccio said is “significant, but warranted” given prolonged soft market conditions amid growing loss frequency and severity.

“If you compare the D&O market five years ago to today, it’s safe to say anywhere from 20 to 30 percent of premium has been taken out of the market,” Riccio said. D&O losses are reaching record levels thanks largely to the growing number of recent securities class actions.

“Securities class action frequency is at an all-time high for the past three years,” Riccio said. “In 2018, the total was up 200 percent from the 10-year annual average between 1997 and 2017, according to Cornerstone Research’s latest report on securities class action filings.”

That increase is being driven by these nine factors — some of which companies and their insurers have never had to contend with before:

1. Stock Market Volatility Drives Shareholder Litigation

Dramatic fluctuations in stock value tend to give rise to securities class actions by dissatisfied shareholders. In 2018, Wall Street experienced more highs and lows than in any prior year since the recession of 2008. Compounding the issue is that more law firms are capitalizing on the volatility by making securities litigation a core part of their business.

According to Cornerstone’s “Securities Class Action Filings, 2018 Year in Review,” a high number of IPOs in 2017 and 2018 have also contributed to more frequent securities filings. With 134 IPOs, 2018 was above the 2001-2011 average of 99 IPOs per year but remained well below the 1997-2000 average of 403 IPOs per year.

“Stocks offered in an initial public offering are more vulnerable to market volatility,” Riccio said. Going public during a downturn can immediately negatively affect stock value, disappoint investor expectations, and draw a lawsuit.

2. M&A Activity Means Merger-Related Lawsuits

Though the total number of mergers and acquisitions dropped slightly in 2018 over 2017, the trend of consolidation is still strong. Deal value also increased. Global M&A deals made through the first three quarters of 2018 were worth nearly $3.3 trillion, a 39 percent increase over 2017.

“Any time you have a merger or acquisition, there’s a chance you’ll see what’s called a ‘bump-up’ or merger-related lawsuit,” Riccio said. “That inflates the total class action number.”

According to Bloomberg Law, 204 new securities class actions were filed in first half of 2018, and more than 45 percent of them were merger-related.

3. Event-Driven Litigation Presents New Liability Exposure

Companies are increasingly facing liability action over catastrophic events. After the destructive wildfires that wrought havoc across California in 2017, for example, utility companies are facing allegations that their equipment played a role in sparking the flames.

“Energy companies have seen D&O claims arising out of their potential involvement in starting these fires,” Riccio said. “Events like this traditionally would not be perceived as a D&O exposure. It’s a new market dynamic leading to an increase in securities class actions, which is leading to increased losses in a market that hasn’t priced for it.”

4. Boards of Directors Face Accountability for Data Breaches

Securities class actions related to data breaches are growing more common and costly. “We’re starting to see D&O claims arise from data breaches and failure to disclose appropriately to the market information regarding any breach an organization suffered,” Riccio said.

Plaintiffs’ attorneys are quick to file suit on behalf of shareholders based on significant drops in stock value following the disclosure of a breach, and on allegations of misrepresentation in SEC filings regarding the strength of their cyber security prior to the breach.

In a recent high-profile case, Yahoo paid $80 million in September of 2018 to settle a securities class action alleging that the company repeatedly misled investors after four separate data breaches that affected as many as 5 billion accounts. Over the course of 2018, at least nine such actions have been filed against public companies related to a data breach.

5. Allegations of Sexual Harassment Imply Board-Level Mismanagement

Class actions may arise from allegations of sexual harassment against senior executives of a company but will target the entire board of directors over how they handle the situation. Lack of adequate disclosure about the incident or an insufficient response can hurt the company’s stock value and ultimately be fodder for a securities class action.

Plaintiffs can also allege that the company misled investors by not disclosing patterns of misconduct committed by senior executives and failed to acknowledge the negative impact of misconduct on the company’s reputation, legal liability exposure, and overall ability to operate. If company assets were used to make confidential settlements with accusers, then allegations can also include breach of fiduciary duty.

6. Social Media Amplifies Effects of Any Negative News

Social media adds fuel to the flame when it comes to many emerging sources of D&O exposure. The #MeToo movement, for example, has made accusations of sexual harassment front page news. Anger over incidents like data breaches or supposed liability for natural disasters can build and spread faster.

When negative news travels farther and lingers longer, it prolongs the impact of any negative event on a company’s stock price, sparks calls for further investigation, and may attract the attention of attorneys looking for a deep-pocketed target.

“Social media has played a role in giving rise to securities class actions that 10 years ago would not have been filed, simply because it creates an extended period of negative press that companies have a harder time coming out of unscathed,” Riccio said.

7. The Cyan Decision May Mean More Suits and More Defense Costs

In the case of Cyan Inc. v. Beaver County Employees Retirement Fund, the Supreme Court ruled early last year that securities plaintiffs could bring class actions against companies under the Securities Act of 1933 in in state courts.

“Prior to this decision if you had a securities claim in state court and federal court alleging breaches of the ’33 Act, they would be consolidated and move forward only in one jurisdiction. The Cyan decision says that the company cannot remove the state court lawsuit to federal court, even if there’s a parallel or identical federal court action. So that permits the lawsuits in state court and in federal court, with the same sets of allegations and facts, to go on side by side,” Riccio said.

“That’s causing more defense costs to be incurred on behalf of the company that’s being sued, and that’s causing more liability to the D&O marketplace because those defense costs may be picked up by a D&O insurance policy.”

8. Cryptocurrency Is Prone to Corruption, Volatility, and Litigation

Because it’s unregulated and its value swings so wildly, companies investing in cryptocurrencies are very vulnerable to securities litigation.

“The cryptocurrency marketplace has been extremely volatile, which has led to a lot of D&O litigation in that space,” Riccio said. “Any time you have a new unregulated investment vehicle, it’s just ripe for manipulation and corruption, and for people to get taken advantage of.”

Most cryptocurrency purveyors that go public with initial coin offerings — or ICOs — have been hit with a securities class action. Through the first half of 2018, at least 12 ICO-related actions were filed.

9. Mega Verdicts and Settlements Hit D&O Policies

Rising liability verdicts and settlements reaching into the multimillion- and even billion-dollar range also enhance D&O exposure.

“Any asset is fair game when you have a mega liability settlement, and that includes D&O insurance, whether the allegation is related to mismanagement or not. Plaintiffs’ attorneys will look for dollars wherever they can,” Ricco said.

The Right Partner Helps Withstand Volatility

During this time of historic volatility and rapidly emerging exposure, companies absolutely need stability in their D&O carrier.

“We’ve been in the D&O market for more than 10 years and are committed to the space; we’re A+ rated, and we’re stable,” Riccio said. “Even with rising securities class action frequency and increased loss costs, we strive for a price point that is fair to both sides.”

Companies can trust in that statement because, as a mutual company, Nationwide’s fiduciary duty is to its insured members, rather than shareholders. “Our obligation is to our members, so we work hard to truly partner with them,” Riccio said.

That mission includes providing a suite of both primary and excess products for companies of every size in any sector, so a solution exists for every member. A partnership philosophy also extends to the claims approach.

“We handle all claims in-house, and we have a tremendous expertise on that side of the house. Our claims professionals work closely with underwriters in order to adjudicate as quickly as possible. We’re always looking out for members’ best interests,” Riccio said.

As professional liability risk becomes more prominent and more unpredictable, carrier stability and commitment will be critical characteristics as the market adapts.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Nationwide. The editorial staff of Risk & Insurance had no role in its preparation.

Nationwide, a Fortune 100 company, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor’s.

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